Supply Chain Management
Amazon’s Whole Foods buy could have far-reaching implications for food industry
At a time when most organizations are looking to grow their online presence, the world’s largest online retailer is expanding into something more concrete—literally, actual brick-and-mortar stores. Amazon announced in June that it is buying the struggling high-end supermarket Whole Foods for $13.7 billion.
The acquisition could mean big changes for the grocery world. Not only could it transform the way we buy groceries, it also could modify the way food is manufactured. A recent Fortune article compared this acquisition to what Amazon did for books:
"Remember the company’s original disruption: bookselling. [Amazon CEO] Jeff Bezos not only shifted how and where books were sold; he also changed how they were made by forcing publishers, authors and everybody else along the book supply chain to cut their costs. The same could very well happen in food, and the outcome for food manufacturers could be as dire [as] it was for book publishers."1
Thus far, Whole Foods has been willing to pay higher costs to work with and support smaller food manufacturers and farmers. Currently, Whole Foods sources 10 to 20% of its products locally.2 But Amazon is known for its cheap prices. So what changes might it make to reduce prices? What might those changes mean for smaller suppliers?
According to a Whole Foods representative, the organization doesn’t plan on making any changes to its list of suppliers—a statement supported by Amazon spokesperson Ty Rogers.
"As the representative from Whole Foods said, Whole Foods ‘remains committed’ to its small and midsize producers, and we will want Whole Foods to do exactly that—to keep doing what it does best, including working with small farms and producers to bring the best natural and organic foods to customers," Rogers said.3
Automation a first step
For now, Whole Foods’ small suppliers don’t have anything to worry about, but for its 11 distribution centers, it’s a different story. There is speculation that Amazon will implement major changes at these facilities, including installing robots to automate grocery distribution.
"The easiest place for Amazon to bring its expertise to bear is in the warehouses because that’s where Amazon really excels," said Gary Hawkins, CEO of the Center for Advancing Retail and Technology. "If they can reduce costs, they can show that (costs savings) on the store shelves and move Whole Foods away from the ‘whole paycheck’ image."5
What would that mean for the warehouse workers’ jobs? If it’s any consolation, despite the thousands of robots Amazon currently has in its warehouses, the organization has more than 351,000 employees and hasn’t stopped hiring.6 Back in January, Amazon announced it plans to hire 100,000 full-time employees over the next year, and many of those positions will be in its fulfillment centers.7
Though Amazon could make its first mark on Whole Foods’ distribution, it hasn’t yet revealed its plans for the more than 450 stores it will acquire. Many predict the organization might experiment with some of the technology it has already implemented in its own innovative prototype grocery store called "Amazon Go,"4 Amazon’s first foray into brick-and-mortar stores or the grocery business introduced in December.
As customers walk through the doors, they log in to the store’s network by scanning a QR code on their Amazon Go app. Once they are inside the store, customers add items to their shopping carts just like they would at any other grocery store.
Through Amazon’s machine-learning technology, those items are also automatically added to a digital shopping cart on the Amazon Go app. The technology even knows when a customer returns an item to a shelf and removes the item from the digital shopping cart.8
After the customer is finished shopping, he or she simply walks out of the store—there are no checkout lanes and no cashiers. The customer’s Amazon account is charged for the items he or she leaves with.
In addition to offering standard grocery items, the store also has onsite chefs that prepare pre-made meals and snacks.9
"Our checkout-free shopping experience is made possible by the same types of technologies used in self-driving cars: computer vision, sensor fusion and deep learning," according to Amazon.com. "Our ‘just walk out’ technology automatically detects when products are taken from or returned to the shelves and keeps track of them in a virtual cart. When you’re done shopping, you can just leave the store. Shortly after, we’ll charge your Amazon account and send you a receipt."10
So far, the only Amazon Go store is being tested in Seattle and is open to Amazon employees only. But could this be a glimpse into Amazon’s vision for Whole Foods?
—compiled by Lindsay Dal Porto, assistant editor
- Beth Kowitt, "Why Amazon’s Whole Foods Deal Is Terrifying Food Makers," Fortune, June 22, 2017, https://tinyurl.com/ycjad98o.
- Joyce M. Rosenberg, "Small Food Makers Wonder About Amazon-Whole Foods Impact," Milwaukee Journal Sentinel, June 24, 2017, https://tinyurl.com/y7jg92km.
- Caitlin Dewey, "The Big Consequence of the Amazon-Whole Foods Deal No One’s Talking About," Washington Post, June 30, 2017, https://tinyurl.com/yda3qe9k.
- Abha Bhattarai, "Amazon to Buy Whole Foods Market in Deal Valued at $13.7 Billion," Washington Post, June 16, 2017, https://tinyurl.com/ybxoj7mc.
- Spencer Soper and Alex Sherman, "Amazon Robots Poised to Revamp How Whole Foods Runs Warehouses," Bloomberg News, June 26, 2017, https://tinyurl.com/y7upujmq.
- Don Reisinger, "Amazon Is Planning to Hire 100,000 Full-Time Employees," Fortune, Jan. 12, 2017, https://tinyurl.com/yb3g9o3t.
- Kif Leswing, "Amazon Is Buying Whole Foods—Here’s Amazon's Vision for the Grocery Store of the Future," Business Insider, June 16, 2017, https://tinyurl.com/y9atj26k.
- "Amazon Go: Frequently Asked Questions," amazon.com, https://tinyurl.com/j2yjw6o.
New Vehicle Quality Reaches High Point
New vehicle quality is at its highest level ever, improving a significant 8% from last year, according to the J.D. Power 2017 U.S. Initial Quality Study released last month.
J.D. Power measures initial quality as the number of problems experienced per 100 vehicles during the first 90 days of ownership, with a lower score reflecting higher quality. In this year’s study, quality improved across seven of the eight categories measured, with 27 of the 33 brands in the study improving their quality compared with 2016.
"Automotive manufacturers are responding to consumer feedback and producing vehicles of the highest quality," said Dave Sargent, vice president of global automotive at J.D. Power. "The industry has improved significantly in each of the past three years. Today’s vehicles have more things that could go wrong, but fewer things that actually do go wrong."
For more results from the research, visit http://tinyurl.com/jd-power-new-vehicles.
APQC Conference Set The American Productivity and Quality Center’s (APQC) Process and Performance Management Conference will be held Oct. 2-6 in Houston. Visit http://tinyurl.com/apqc-houston-conf for more information about workshops, sessions and keynote speakers scheduled at the event.
AIAG Plans Summit The Automotive Industry Action Group’s (AIAG) Quality Summit will be held Sept. 19-20 in Novi, MI. For more information, visit http://tinyurl.com/aiag-summit-2017.
AME Annual Event Slated The Association of Manufacturing Excellence (AME) is hosting its annual international conference Oct. 9-13 in Boston. To access the schedule of events, visit www.ame.org/boston.
Proposed Standards to Cover Drone Use Three proposed American Society for Testing Materials (ASTM) International standards will support the use of drones in search and rescue operations. ASTM International’s committee on search and rescue is developing the standards, which will help classify search and rescue drones, cover operator training and address drone operations. For more information, visit http://tinyurl.com/astm-drone-standards.
Healthcare Quality Week Scheduled for October The National Association of Healthcare Quality is organizing "Healthcare Quality Week" Oct. 15-21 "to celebrate the contributions professionals have made in the field and to bring greater awareness to the profession of healthcare quality." Visit http://tinyurl.com/nahc-healthcare-week for more information.
New @ ASQ
As part of November’s coverage of 50 years of Quality Progress magazine, editors want to hear from you. Submit stories and memories about quality and how you’ve seen the profession advance over the past five decades. Express wishes for Quality Progress in its next 50 years. Visit asq.org/50-years-qp to submit your ideas and stories, which could be featured in the November edition of Quality Progress.
ASQ’s Reliability and Risk Division is co-sponsoring the 2017 Accelerated Stress Testing and Reliability Conference Sept. 27-29 in Austin, TX. Visit www.ieee-astr.org for more information. The division also is planning a webinar on causal learning at 9 a.m. PST Sept. 14. The webinar will be led by Robert Stoddard, an ASQ fellow and a long-time division leader. For more information about the event, visit http://asqrd.org.
ASQ’s Inspection Division is hosting its annual conference Sept. 14-15 in Grand Rapids, MI. For more information about the program, keynote speakers and short courses offered at the event, visit http://asq.org/conferences/inspection-division.
ASQ’s Quality Information Center is trying to complete its archive of ASQ/ASQC World Conference proceedings. If you have conference proceeding documents from 1948-1950, please contact ASQ’s librarian at firstname.lastname@example.org.
Full-Service Eateries Serve Up Low Scores
Customer satisfaction with full-service restaurants is down 3.7% to a score of 78 (based on a 100-point scale), according to a new report from the American Customer Satisfaction Index (ACSI). This is the lowest score in more than 10 years and the first time that full-service restaurants have been beaten by the customer satisfaction ratings of restaurants in the fast food category.
"Lower customer satisfaction is a major threat to the restaurant business," said Claes Fornell, ACSI chairman and founder. "Full-service restaurants cannot lose to fast food on quality and customer satisfaction because they can’t compete on price. If a lower-price competitor has higher customer satisfaction than a rival that competes on quality, the latter is obviously in serious trouble. Low price alone rarely leads to high levels of satisfaction, but high quality usually does."
Menu prices are on the rise, but consumers said they don’t think full-service restaurant quality is good enough to justify higher prices. Same-store restaurant sales are down, and foot traffic is shrinking. Independent restaurants and smaller chains, which make up the majority of the industry, are down 4% to an aggregate score of 78.
For more on the restaurant results, visit http://tinyurl.com/ACSI-restaurants.
Getting to Know …
Current position: Project engineer, product stewardship lead, Johnson & Johnson Vision, Orange County, CA.
Education: Bachelor of engineering in electronics and communication from the University of Roorkee in India (now Indian Institute of Technology).
What’s the best career advice you ever received? If you want to make a line smaller without touching it, draw a bigger line next to it. In other words, don’t worry about the stature of your colleagues. Look at yourself and rise above the others.
Is there a teacher who influenced you more than others? Why? My father, J.K. Goyal, (the head of the mathematics department at Christ Church College in Kanpur, India) always emphasized the value of education. Education is one wealth that no one can steal from you and the more you share, the more it will grow.
Any previous jobs you consider noteworthy? All jobs are noteworthy, but SMT Dynamics LLC was one of the finest organizations I worked for. People talk about Six Sigma—but at SMT Dynamics, we were practicing Six Sigma.
Are you active in ASQ? I hold leadership roles for the ASQ Orange Empire and San Gabriel Valley Sections; I am vice chair of the Southern California Quality Conference; I teach various ASQ certification courses; and I participate in joint events with other professional societies.
Any recent honors or awards? I was elected to ASQ’s 2017 class of fellows.
What activities or achievements outside of ASQ do you think are noteworthy? I teach at a community college and regularly present for other professional societies.
Have you published anything? I’ve published two reader guides on regulatory affairs and quality audits, as well as articles for my local ASQ sections’ newsletters.
Do you have a mentor who makes a difference in your career? Primarily my parents, teachers and others I’ve met and worked with. Every day, I learn from people around me—whether they’re my work associates, students or my family (even my grandkids).
Personal: I’ve been married to Sandra Sadhana Goyal for more than 34 years and have two sons, Sudeep K. and Sushant; one daughter-in-law Trisha Sawyer Goyal; and two grandsons, Hadrian Krishna and Gaius Naveen.
What do you do for fun? I love traveling with family and appreciating other cultures.
Quality quote: Like the universe, quality is infinite.